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Can Debt Consolidation Stop a Lawsuit?

How lawsuits affect your ability to consolidate with a debt management program.

A debt collector is suing me. Is it too late to go through debt consolidation? Can debt consolidation stop a lawsuit if they already filed? If not, then what else can I do?

Debbie G. in Gardner, MA

What to expect if a debt collector sues you over an unpaid debt

There’s a very big difference between a collector saying that they’re going to sue you and actually taking legal action. If a collector formally sues you for debt in civil court, you will receive an official summons from the court. You must respond to the summons by the date indicated or you could face more severe legal issues.

You have two basic options for how to answer the summons:

  1. Try to work out a payment plan so you can avoid going to court
  2. Let the suit proceed and let the courts decide

Generally, the best option is to work something out to avoid the hassle and stress of going to court. In this case, you have a few options.

  • Debt consolidation through a debt management program, which will repay everything you owe. This solution can give a solution for all your debts, including those that are still current with the original creditor.
  • Debt settlement, where you offer the collector a percentage of what you owe in exchange for discharging the remaining balance.

If you’re trying to avoid any further damage to your credit score, consolidation is the better option. If you’re just looking for the fastest exit possible for the least amount of money, you may want to consider settlement.

Compare debt management and debt settlement side-by-side »

Consolidating debt when you’re being sued by a debt collector

Enrolling in a debt management program (DMP) puts a certified credit counseling team on your side. They work on your behalf when it comes to negotiating with creditors and collectors. Once you work out a payment you can afford, the credit counseling team gets to work calling everyone that holds a debt you want to include in the program. Essentially, creditors and collectors must agree to take payments through your DMP the adjusted payment schedule you set up with your credit counselor.

Why collectors will be willing to accept payments through a DMP

What is a debt management program?

Including a debt that’s already in collections in your DMP means that you’ll basically end up repaying the full balance owed. That’s the best possible outcome for a collector. Debts in collections don’t have interest charges and the collector can’t add any fees to what you owe. So, the best-case scenario for a collector is that you make arrangements to repay the full balance. That’s exactly what happens when you consolidate – the full balance gets repaid.

That gives a collector that’s thinking about suing you a reason to pause on that action. It even gives a collector that’s already started a lawsuit reason to reconsider. If they take you to court, they most likely will only recoup a portion of what you owe. The court will decide on the fair amount for you to repay based on your income and financial situation.

So, if a credit counselor calls that collector and tells them you’re willing to repay the full amount under a DMP, that’s an offer that comes down in their favor.

Talk to a certified credit counselor now for free debt evaluation to discuss your best options for debt relief.

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